The Impact of the EU Common Agricultural Policy on Regional Agricultural Productivity

ABSTRACT This paper investigates the relationship between EU agricultural subsidies and labor productivity growth in agriculture, using data from 1007 NUTS‐3 regions over the period 2007–2020. The fine spatial resolution improves comparability across regions and allows a more detailed assessment than previous aggregate studies. A novel contribution of this work is the adjustment of subsidy amounts for national co‐financing, ensuring consistency across Member States. We disaggregate CAP payments into their main components and test robustness to spatial dependence. The results show that decoupled Pillar I payments significantly enhance labor productivity. Among Pillar II measures, human capital and forestry support display positive effects, whereas early retirement and less‐favored area payments are negative, and organic farming support shows transitional short‐term declines that fade over longer horizons. Population density is consistently negatively related to labor productivity growth.